• James von der Lieth

5 Ways VRM's Can Prepare Financially For the Impending Coronavirus

Background


U.S doctors are bracing for a rapid rise in U.S. coronavirus cases this week as state and local public health labs ramp up testing after weeks of delays due to a flawed test by the U.S. CDC.


On March 2nd, this NYC ER doctor went on CNBC to talk about how the CDC has screwed up the testing kits.



As of March 12, there is still not large scale testing in the U.S. Due to limited testing for coronavirus right now, it's very clear that the current statistics (as of end of day 3/3/20) of ~100 cases and 6 US deaths are drastically understated.


Basically, the only people who are getting tested, have recently traveled abroad to a coronavirus hotspot and feel very sick OR are in a major city where some tests are available and they are banging down the door to be tested. With the exponential nature of this virus' infection rate, this could mean 10,000's of people already have it and just haven't or can't be tested yet.


Even so, the cases are growing rapidly...


The virtually non-existent testing is the elephant in the room as local, state and federal leadership tries to assuage the public's growing fears. The Federal Reserve is trying to get ahead of this by announcing yesterday they are lowering interest rates by half a point, as a direct result of coronavirus concerns.


Large Scale U.S Coronavirus Testing Coming Very Soon


Now that the U.S. appears to be ramping up testing, the number of reported cases and deaths will grow quickly in the next week or so. Public-health officials are currently cautioning people not to worry as that happens, but it will be hard for the average American to delineate which portion of the ballooning number of cases is the result of more testing and what proportion is from the actual spread of the virus.


"Up to 1 million people could be tested for coronavirus by the end of week, the FDA said, as cases across the US rose to more than 100 and health officials warned the number will keep climbing." - CNN

Airbnb Drastically Reacted to the China's Large Scale Test Results


When the original coronavirus outbreak hit China, the statistics were also artificially low for many days. On 2/12, the Chinese government "updated the stats," and the total cases rose OVERNIGHT by 15,152 new coronavirus cases and 254 additional deaths.


The next day Airbnb cancelled all bookings in Beijing from February until May!


"Airbnb customers who had reservations in Beijing between Feb. 7 and April 30 will be refunded, a spokesman for the travel start-up said, adding that the company was following local government guidance to short-term rental companies." - CNBC on 2/13/20

Keep in mind Airbnb, is one of the few tech companies that's allowed to operate in China, so they were forced to enact this extreme response by the Chineses Government. It's unlikely a response this drastic would happen in Western countries, but it's still possible months of bookings could disappear over night. Anything is possible here.


Airbnb Has Already Delayed Their IPO


Airbnb, expecting major financial repercussions this year due to the coronavirus is already rumored to be delaying their IPO due to expected negative financial repercussions from the coronavirus.


How This Could Likely Impact Vacation Rental Companies


When widespread testing is finally rolled out in the U.S, it will likely lead to a major loss in consumer confidence, and possibly similar types of unprecedented responses that China had to contain the breakout. Overnight, many people won't feel comfortable booking flights and vacation rental properties. Or worse yet, flights could be cancelled all together if it's treated as a federal emergency. Booking agents like Airbnb or VRBO may decide to cancel all reservations and/or block off dates that they deem unsafe to public health. Who knows. The point is we are in uncharted territory here.


There is also the chance that Airbnb will not allow ANY bookings from guests/hosts in hot spots that are infected. Who knows how their lawyers looking to safeguard assets for next year's IPO will view this issue. This would be devastating to VRMs and their owners.


Anyway you look at it, the virus isn't slowing down and it's here for the next year or so. Most scientists believe the virus will level off in the summer and then come roaring back before we have a vaccine in the autumn when it's cold again.


The impending U.S statistics, seem like it has the potential to be a black swan event for companies that rely on travel, tourism, and in-person experiences. If in fact 10,000's of people truly have the virus, which is possible,


#1 Consider Switching Your Listings to Airbnb's New Flexible Cancellation Policy


Airbnb announced that in response to the coronavirus fears, they will be rewarding hosts who have the most flexible cancellation policies. The following is from their new policy, detailing how hosts with flexible policies will be rewarded.


Since Airbnb historically rules on the side of guests in grey-area matters, having a strict cancellation policy is unlikely to mean much in 2020. Most guests will be able to find a way to get out of a strict or moderate cancellation if they say they need to cancel due to the coronavirus. Why not try to get more bookings and be rewarded on the Airbnb search alg with a flexible policy?


#2. Consider Creatively Insuring Against Potential Future Lost of Income


Despite my best effort to find a loss of income insurance for Airbnb hosts, there is no insurance product that covers short term rental companies or owners from loss of income related to natural disasters or pandemics.


Without direct insurance available, the next best option to mitigate the financial risk of coronavirus is to turn to the U.S stock market to find ways to profit off of negative impacts to the travel industry. This is called hedging your bets. Although, I haven't bought put or call options in years, this seems like a unique circumstance where it makes sense to buy put options as indirect insurance against the risk.


What is a put option?

A put option is a contract giving the owner the right, but not the obligation, to sell, or sell short, a specified amount of an underlying security at a pre-determined price within a specified time frame. The pre-determined price the put option buyer can sell at is called the strike price. A put option becomes more valuable as the price of the underlying stock decreases.

Put Option Ideas


  1. Bet against WYNN National Resorts $WYNN, who operates 2 major casinos in Asia. As a 5 star resort company, this stock is also a decent hedge against an economic downturn, in addition to coronavirus concerns. Their average customer is older, and therefor more afraid of going to public places with large amounts of people.

  2. Bet against Marriott $MAR, the largest lodging company in the world. Marriot's brand attracts an older demographic that will likely be in fear of the coronavirus.

  3. Bet against Booking Holdings $BKNG, which owns travel aggregators like Booking.com. and Priceline. Coronavirus aside, this is a stock I don't like. In my opinion, this $72 billion company can only go down because of disruptors like Airbnb, HotelTonight (owned by Airbnb), Google Flights, and Google Hotels. At a $72 billion market cap, it has a long way to fall after one bad earnings call. The coronavirus might be the wake up call investors need to realize $BKNG's model has been disrupted over the last 5 years.


#3 Start Becoming Lean As Possible


Don't renew long-term contracts or overhead items that are up for renewal if you can help it. If you can, switch employees to contractors.


#4 Stress Cleanliness in Your Listing Descriptions & Maintain High Standards at All Costs!


As travelers learn about the coronavirus and its highly contagious nature, they are going to be very concerned with cleanliness as a top priority.


Consider words like "spotless," "meticulously cleaned," "professionally cleaned," "attention to detail", etc. Of course, following through on these promises with your cleaning staff is essential to maintaining good reviews.


#5 Craft A Worst Case Scenario Projection and Consider an SBA Loan as Backup Plan


The emergency SBA Loan program has been officially announced. There will likely be a big demand for this program, so act quickly, even if you're not 100% sure you'll need it yet.


#6 (Bonus) Enroll in my Free Mini Course for Other Ideas


I've created a mini-course 5 Ways VRMs Unknowingly Lose Money designed for VRM businesses who are looking to tighten their belt. I also offer a premium course for VRMs looking to automate their accounting.


Conclusion


Although recent history has shown that these scares are overblown, it was only 102 years ago, a small blip in the grand scheme of things, that 50 million people were killed by the Spanish Flu. With today's health care system in the West, this is extremely unlikely. However, until there is a cure and vaccine available, the coronavirus and its ability to grow exponentially poses a real threat to the elderly, and as a consequence the travel industry.


I hope the coronavirus doesn't turn out to be as bad as the worst case scenario would suggest. I also hope that the CDC and U.S government can act quickly to prevent as much life lost as possible. With that said, it's always good to hope for the best, and prepare for the worst when it comes to finances.



Thanks for reading. You can stay up to date with the latest developments by signing up for our free STR newsletter below.👇Comment below with comments or other ideas👇

Subscribe to New Blog Posts

Other Posts

STR Industry Newsletter

Join 1000+ Property Owners and Managers Who Read

2020 Coronavirus Edition

Keep up-to-date on how to navigate the 2020 Coronavirus Global Recession with a weekly rundown of coronavirus implications, global STR data, STR advocacy movements, government assistance opportunities, OTA policy updates, SBA Loans, practical strategies, and other opportunities for STR property owners and managers

  • LinkedIn
  • Twitter

© VRM Empire 2020